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Straco Corporation Ltd’s 2019 Second-Quarter Earnings: Net Profit Down

Straco Corporation Ltd (SGX: S85) is an owner and operator of tourism-related attractions in China and Singapore. In China, the company owns the Shanghai Ocean AquariumUnderwater World Xiamen, and Lintong Lixing Cable Car attractions. In Singapore, Straco Corporation has a majority stake in the iconic observation wheel, Singapore Flyer.

On Tuesday, the company announced its financial results for the second quarter ended 30 June 2019. Let’s look at the key highlights.

Show me the money

Revenue for the second quarter tumbled 6.5% year on year to S$26.4 million. Straco said the revenue fall for the reporting quarter was largely due to lower revenue contributed by the China attractions.

Overall visitor numbers to all of Straco’s attractions fell 11.4% to 1.08 million visitors mainly due to lower visitors to its attractions in China. It’s heartening to know that the Singapore Flyer reported higher visitor numbers this quarter compared to last year; the Flyer has been allowed to operate at full capacity since 31 January 2019.

Profit attributable to shareholders declined by 16.8% to S$9.0 million from a year ago. As a result, diluted earnings per share for the reporting quarter fell to 1.04 Singapore cents from 1.25 cents a year back. The lower profitability was due to increased expenses such as consultancy, staff, and insurance costs. There was also an exchange loss of S$0.39 million recorded in this quarter due to the weakened Chinese yuan against the Singapore dollar.

As of 30 June 2019, Straco had S$188.4 million in cash and equivalents with total borrowings of S$31.9 million, giving a net cash position of S$156.5 million. This is an improvement from exactly a year back, when the net cash position was S$136.5 million (S$180.4 million in cash balance and total debt of S$43.9 million).

Cash flow from operations improved 4.1%, from S$13.0 million in 2018’s second quarter to S$13.5 million in the latest quarter. After accounting for capital expenditure, free cash flow for the reporting quarter grew 3% to S$12.7 million.

The fall in revenue and net profit could be temporary due to the challenging economic climate. My Foolish colleague Royston Yang mentioned in his summary of Straco’s 2018 annual general meeting (AGM) that “trade tensions between the US and China have resulted in weaker visitor numbers, and there has also been a dampening effect on tourism.” That trend seems to have continued into the 2019 second quarter.

What does the future hold?

Regarding China, Straco shared the following in its outlook statement:

“The National Bureau of Statistics of China reported that China’s gross domestic product (“GDP”) grew 6.2% from a year ago, in the second quarter of 2019, amid the ongoing trade dispute with the United States. For the first half of the year, the economy grew 6.3% year-on-year. Despite the economic slowdown, domestic tourism remains resilient.”

As for Singapore, it said:

“[T]he economy expanded by 0.1% year-on-year in 2Q2019, based on advance estimates from the Ministry of Trade and Industry, attributed mainly to the manufacturing sector. For the tourism sector, Singapore Tourism Board (“STB”) statistics showed that overall visitor arrivals for January to May period increased 1.49% year-on-year to 7.77 million.”

For the whole of 2019, STB has predicted tourism spending to rise between 1% and 3%, and total visitor arrivals to be in the range of 18.7 million to 19.2 million, an increase of 1% to 4% compared to 2018.

The Foolish takeaway

Even though revenue and net profit fell for the 2019 second quarter, it’s pleasing to note that Straco generated higher free cash flow. Its balance sheet remains rock-solid as well, which is great considering the tough economic conditions the company has to deal with. At Straco’s share price of S$0.75 on Tuesday, it had a price-to-earnings ratio of 14.4 and a dividend yield of 3.3% (excluding any special dividend).

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Straco Corporation Ltd. Motley Fool Singapore contributor Sudhan P owns shares in Straco Corporation Ltd.